RDP 2007-10: Trade Costs and Some Puzzles in International Macroeconomics Equation (3)

R E R_{i t} = δ_{3} + ϕ_{3} R E R_{i t - 1} + γ_{3} R E R_{i t - 1} f_{i t} + θ_{3} f_{i t} + e_{3 i t}